New estimate shows $712 million deficit from tax cuts

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Topeka  The tax cut endorsed by Gov. Sam Brownback would drive the state into a $712 million deficit within six years, according to a new state calculation released Wednesday.

But the Brownback administration said that the calculation put together by the Kansas Legislative Research Department was wrong. Kansas Secretary of Revenue Nick Jordan and Brownback's budget director Steve Anderson said the tax cut will boost the economy and lead to a positive ending balance in state coffers.

"We are not playing games with these numbers," said Jordan. "We are confident in our methodology," he said. He said the Revenue Department would release its estimates on Thursday.

Legislators have depended on the non-partisan, professional staff of the Kansas Legislative Research Department for decades.

On Monday, the Legislative Research Department released a state general revenue fund profile that showed the proposed tax cuts would produce a deficit of $161 million in six years. But on Wednesday, it issued a new calculation because the earlier one had an error.

Some legislators said the $712 million deficit under the new calculation would make it difficult to approve such a huge tax cut.

"We can't do something that we can't afford," said Senate President Steve Morris, R-Hugoton.

Senate Democratic Leader Anthony Hensley of Topeka said, "We do not want to self-impose a budget crisis that will put us in the red year after year."

The deficit could not be covered by budget cuts, said Hensley because during the recession the state already cut $1 billion.

The proposed bill would decrease state income tax rates and exempt non-wage business income, which will affect nearly 200,000 businesses formed as limited liability corporations, chapter S corporations and sole proprietorships. It would also follow current law and allow the 6.3 percent state sales tax to decrease to 5.7 percent next year, and provide $180 million over four years to local governments for property tax relief.

After the $712 million deficit figure was released, Jordan and Anderson had a quick briefing with reporters. They said the Revenue Department calculated the impact of the tax cuts on an incremental basis year by year, while the Legislative Research Department figured the cumulative effect of the tax cut.

Jordan and Anderson said their methodology was supported by an independent certified public accountant.

Earlier Wednesday, Kansas Democratic Party Chairwoman Joan Wagnon, who is also a former secretary of the Kansas Department of Revenue, said the tax cut would rob funds from schools and other services while delivering a windfall to wealthy businesses including Kansas-based Koch Industries.

"Certainly the public would not believe this tax break should be targeted to one of the largest and wealthiest businesses in our state," Wagnon said in a statement delivered to the House-Senate tax conference committee that is working on the bill.

Wagnon, who served as revenue secretary under former Gov. Kathleen Sebelius, a Democrat, said there are 38,000 limited liability corporations that would be affected. She said she did a search of the Kansas secretary of state's databases and found 24 business entities related to Koch Industries that are LLCs and would be affected by the proposal. All of the companies are based in Wichita.

"Of course, I have no way of knowing the tax impact of this change on their business. But, their filing status is public, and definitely included in this bill as it stands now," she said.

Jordan defended the business tax cut, saying it would help thousands of small businesses hire more people. "Is that evil? The goal is to grow small businesses," he said.

Wagnon also criticized other parts of the tax-cutting package that would eliminate tax credits for child day care and a provision that would require low-income families who now quality for both the Earned Income Tax Credit and food sales tax rebate to pick one and not benefit from both.

"Again, limiting lower income earners to either the EITC or the food sales tax rebate seems to take from those less able to pay in order to fund a tax break for the LLC's (Koch included!)," she said.

Comments

From a $600 million surplus to a $712 million deficit in just six years. A decline of more than $1.3 billion! That's some efficient destruction! Sherman's march through Georgia was nothing compared to what Brownback's roadmap has in store for Kansas.

You've got to hand it to Brownback. Losing $2.4 million in matching funds by eliminating the Kansas Arts Commission and returning a $31.5 million Health Exchange grant were clearly just warm-up acts. When his Kansas-wrecking juggernaut goes into action the world will gasp in shock and awe.

There's no doubt that businesses will be lining up to get into Kansas. Business owners love the idea of relocating to states that are about to jump off of a cliff financially. That way they can invest in facilities that they will end up abandoning in six years when the state has no alternative but to reinstate taxation with a vengeance.

Oh, listen to the squealing of the little piggies who feed on other people's money at the public trough! They don't want the people who actually earn money to keep more of it; they want that money flowing at maximum volume into their public trough!

"if current spending levels continue" is not a caveat. It's the only unbiased assumption one can make.

What else is he supposed to do? Start making conjecture on what may or may not be cut? Would that be better journalism in your mind?

Perhaps he should say instead "The projected $712 could be mitigated by one or more of the following situations..." and then proceed to iterate over a few dozen possibilities that haven't happened yet. That would be good journalism. You bet.

I doubt they're taking into consideration the abuse of this loophole on "business income". It won't be difficult to turn just about every dollar of profit in the state into nontaxable income. A more reasonable estimate is probably 3 times what they came up with. I think that might be the idea anyway.

We cut spending and regulation and decreased unemployment by 1 percent and in one year we have 600 million in the bank. Clearly the answer is to decrease taxes increase jobs and watch the cash flow in. If there are jobs everybody participates. If there are jobs and the message is work first we need less handouts. But everybody from top to bottom should have no free ride.

You seem to have a foggy memory about what really happened to taxes. You left out the part about raising sales taxes by 1%. Maybe if we raised sales tax by 10%, we would have negative unemployment (said tongue in cheek).

Well, maybe you need to put your Kansas unemployment rate claims into some perspective? Like the Kansas unemployment rate ROSE last month, while the US unemployment rate fell? Or that your 1% decrease claim was based on 2010 figures? Or that, while the Kansas unemployment rate drop between the 2010 and 2011 average was .5%...the drop in the US rate was .7%? Or that, while the Kansas rate dropped by 1% between 2010 and now, the US rate dropped by 1.4%???

Seems to me like that data might be of value, too. After all, if our unemployment rate is dropping SLOWER than the nation's and our unemployment rate went UP last month, while the nation's went down...doesn't that impact how we should view the whys and wherefores?

Oh...and cutting $1 billion when your debt is not quite half of that? Heck, I'd expect some "surplus", too. But I'm not sure I would claim that's all good. After all, a lot of jobs were lost through those cuts...which probably helps explain Kansas' SMALLER employment growth. And, I don't know if you realize it, but regulations also create jobs. Including lots and lots of PRIVATE jobs!

Oh...and, if you want to decrease taxes, make sure you put the additional money in the pockets of people who will spend it on things that create jobs!!! Because businesses ONLY hire additional workers when they NEED additional workers...and they only need them when there is sufficient INCREASED demand that it can't be met by existing workers! Anyone who has ever owned a successful business knows this. It should be common sense. After all, when I make more profit in my business, why on earth do you think I would spend it on a new employee I don't need??? What am I supposed to pay them to do...sit on their thumbs?

Common sense should also let you know that it's illogical to think that tax cuts for businesses would lead to more jobs...when new jobs are only created by new demand by customers.

And no one should get a free ride...top to bottom??? Are you truly that heartless? That ignorant? Or should we simply assume that you believe in euthanasia under all circumstances...both pre- and post-birth. Euthanasia to be determined by whether or not taxpayers would have to pay a penny.

how about this sam? keep taxes unchanged till we get a $712 million surplus, make your tax cuts, pay for any deficits out of the surplus till it's gone. if it doesn't go, you were right. tax cuts stay. if it goes, we're no further behind and taxes immediately go back to where they were.

Unless they've changed the rules, SS income is federally taxable under certain conditions, mainly your overall income levels, if I remember right. And, different states have different rules about taxing it as well.

I haven't been in a "frezy" since...well, I don't know that I've ever been in a "frezy". But I do know how to use quotation marks. Perhaps it's a lack of "frezy" that allows me to have that particular communication skill?